IRB Data Pool

Baseline's data pool exceeds the critical mass of data required to build highly predictive models under the Retail IRB approach to Basel II credit risk management.

The service pools residential mortgage data into a database currently comprising 300,000 UK residential mortgages and derives from this pooled models for PD, LGD and EAD.

Our PD, LGD and EAD models have been built and verified by industry experts allowing our clients to embed reliable and robust Basel II outputs into their risk management practices.

As part of the service, we provide monthly analysis for each pool contributor which comprises the regulatory data requirements together with standardised lender to pool comparative reporting.

The success of the data pool solution emanates from the key controls surrounding data quality and completeness. A specification document outlining the exact data requirements for each lender's data extract is agreed with the lenders on their signing up to the service. Lenders are required to audit both their data extraction process and the systems from which their extracts originate so that all contributors to the pool have confidence that the pooled data is consistent, complete and allows robust like-for-like comparisons. Baseline currently obtains circa 230 data items with regard to each mortgage on a monthly basis - circa 150 items of data on each lender and circa 80 fields from Experian's Delphi Block.

Standardised Approach

Baseline uses the strength of the IRB models to assist institutions adopting the Standardised Approach to Basel II for UK residential mortgages in developing their ICAAP. The ICAAP requires institutions to calculate the necessary capital to enable the business to remain solvent through stressed scenarios. Standardised institutions must utilise fixed worldwide risk weights for assessing the quality of the residential mortgage assets but the question arises as to how appropriate these risk weights are for the portfolio of any particular institution. In particular, how does a small building society benchmark their portfolio against a worldwide risk weight of 35% and ensure that the outcome befits their lending practices in the UK and a concentrated region of the UK at that?

As a small-medium sized lender, you need to know whether a 35% risk weight results in an 'excessive', 'appropriate' or 'inadequate' level of capital in respect of the specific risks within your portfolio, and Baseline's Standardised service range helps you achieve just that.

We provide a UK based comparison by deploying the IRB models to calculate capital which can be tested against the regulatory minima in order to inform your judgement as to the need for any incremental capital.

Benchmarking

Institutions who benchmark with Baseline have the opportunity to validate their internal IRB models by running a sample or all of their data against the Baseline models for comparison purposes and tracking over time.

The benchmarked comparison can provide comfort to the Regulator and/or Board Audit and Credit Committees on the robustness of the models. The service can be performed on an in-house or outsourced basis - whereby, we can either license the model for your use in-house or we can run an extract of your data through our database and analytic solution.

Mortgage Transaction Services

Baseline uses statistical modelling to add value to both buyers and sellers of mortgage portfolios. Currently many investors' portfolio evaluations are based on assumptions drawn from US and/or UK RMBS, but rather than rely on assumptions, Baseline can analyse the portfolio to determine a view of the likely behaviour of the accounts and thus provide a granular analysis of the portfolio.

The analytics we perform will enable you as buyer/seller to evaluate the relative risk, capital consumption, profitability, risk or attrition assumptions associated with each mortgage prior to concluding the transaction - giving your Board and risk committees the data they need to inform both profitability and pricing decisions as well as meeting the FSA's requirements.

This approach can also be used to inform risk based due diligence in order to focus on those areas of the portfolio accreting risk disproportionate to margin. In addition, use of this data allows access to pooled risk data on new asset classes that you may not currently write (where such evidence can be meaningfully extracted from the pool) allowing you to explore potential new avenues with greater confidence of its worth to your business.

Consultancy

Our presence in the UK building society sector is widely recognised and we are acknowledged experts in the field of Basel II implementation and strategy.
Our advisory services include:

• Basel II compliance advice
• Basel II strategy development
• Basel II training across all levels of the business
• Analytic and modelling services - including modelling training
• Use Test workshops.

Further Support

Additional areas of expertise

As well as answering all your Basel II compliance needs, we can also provide further support in the following areas:

• Added value credit risk MI/KPIs - we offer additional bespoke analysis to meet your sales, marketing, product design, retention and other management requirements.
• Data trend and analyses for third parties - if you're a ratings agency or insurance company, you can benefit from the potential trend reports available from our analysis of pooled data (such as an analysis of the risk profiles of pools with MIG).
• Stress testing - we'll provide a base level of stress testing as part of the contracted solution. Additional stress testing will be available on a bespoke basis, should additional analysis be required.